UK companies’ deposits with banks and building societies fell at record pace in the final three months of last year, as cuts in lending and falling profits forced companies to dig deep into their savings.

The sharpening rundown of cash reserves at non-financial companies serves as advance warning of rising insolvencies, steep declines in investment and widespread job cuts this year.

Corporate deposits fell by £6.5bn ($9.5bn), or 1.9 per cent, during the quarter, the biggest drop since the survey began in 1998, data from a Bank of England analysis of UK companies’ deposits and borrowing showed. Deposits have fallen in five of the past six quarters.

All the main non-financial sectors saw record drops in cash holdings compared with a year earlier, with deposits falling 12.5 per cent at manufacturing companies and 6.9 per cent in the services sector.

Construction and real estate also suffered.

“The fact that corporate liquidity is still worsening suggests that corporate retrenchment is not even close to finished,” said Michael Saunders, an economist at Citigroup.

“In a sense, it’s too late for policy. The economy is faced with a period of intensive corporate retrenchment.”

Lending to private non-financial companies rose by just £100m in the quarter, the lowest level since 2003, with manufacturers, the services sector and construction companies all seeing a drop in outstanding loans.

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